Nike (NKE) stock has been hammered over the past year, but one analyst thinks the sneaker giant’s inventory issues may ease.
“We’re at the start of a super sneaker cycle,” Evercore ISI Managing Director Omar Saad said on Yahoo Finance Live (video above). “People are wearing more sneakers. They’re wearing more sneakers. Their feet are absolutely used to the comfort that sneakers and other comfy shoes bring during COVID and are hesitant to go back to uncomfortable everyday dress shoes just for special occasions.”
And according to Saad, Nike “is the company best positioned to take advantage of this massive sneaker super cycle.”
Over the past two decades, Nike stock has consistently outperformed the S&P 500 and has been something of a beacon for the retail industry. However, shares of the clothing giant have plunged 45% since the start of the year, far behind the S&P’s 21% drop.
While a surge in demand could give Nike a much-needed boost, it remains to be seen whether it can outweigh supply pressures from the inventory-ridden retail industry.
“We think it’s going to be a really, really tough holiday. [season]and part of that is really about the buying behavior coming in 2023 in the wholesale channel,” Adrienne Yih, chief executive of Barclays, told Yahoo Finance. “Nike still has around 55% in the wholesale channel, even though they’re making great strides. by moving to [direct-to-consumer]. So that’s sort of the gist of the short to medium term.”
Nike’s performance this holiday season could rest in the hands of its biggest names. The latest shoe in LeBron James’ signature collection, the LeBron XX, is set to release just before the start of the NBA season. And come December, a cyclical blitz of retro Jordan-brand merchandise is set to drop, leading fans to brave the cold and camp outside stores in years past.
“Uncertain times” in China
Beyond stock counting, sneaker brands have seen a hesitant reopening in China, a key region contributing to sales growth.
Nike sales in Greater China missed estimates last quarter as COVID-19 lockdowns continued to weigh on the business.
“In the fourth quarter, revenue was down 20% on a currency-neutral basis and EBIT was down 55% on a reported basis,” Nike chief financial officer Matt Friend said on the call on fourth quarter results in June. “This follows the most widespread COVID disruption in the region since 2020, affecting over 100 cities and over 60% of our business.”
The drop in revenue could be “a transitory COVID issue in the short to medium term”, Yih said, but it could also be the first evidence of consumer preference for domestic brands in China.
Nike and other brands targeting expansion in China, such as Adidas (ADDYY), Under Armor (UA) and Lululemon (LULU), have faced greater competition from domestic brands such as Li- Ning and Anta, which experienced revenue growth and increased market share.
“If you look at their first-half numbers, Li-Ning was up 22%,” Yih said. “Anta was taking a 14% share of the market. You compare that to Adidas, down 35%, and then, for the first half of the year that we know, Nike, down 12%. And we think so this is kind of an uncertain time.”
Brad Smith is a Presenter at Yahoo Finance. Follow him on Twitter @thebradsmith.
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